One of today's biggest gainers is a small-cap, NASDAQ traded, application software company, Net1 UEPS Technologies (UEPS), and at one time was up over 30% in just this one trading day. As of the time of this writing, Net1 UEPS Technologies is rising approximately 28% from a close of $6.72 on Tuesday, January 18, 2012 to its current price of $8.60. The magnitude of this one-day performance begs questions. First of all, is it possible that a business can change in value by over 25% in one single business day? Number two, if the answer is yes, then what could cause such a startling advance?
Moreover, questions about the rational nature of the market also arise. Was the market correctly pricing this company yesterday, or is today's price correct, or is the market continuing to improperly value the business behind the stock? When you think about a change of this magnitude occurring so quickly, a logical explanation seems difficult to imagine. Let's take a look at this company to see if there are any sensible answers to any of the questions posed.
Net1 UEPS Technologies (UEPS)
Net1 UEPS Technologies (UEPS) - bills itself as the leading provider of secure and affordable transaction channels between formal business and un-banked and under-banked individuals. Their primary business is supplying chip card technologies and systems that provide alternative payment solutions for populations in developing economies. Typically these populations, estimated at 4 billion people, have limited or even no access to traditional banking facilities. This company's signature product is its Universal Electronic Payment System (U.E.P.S.).
The following F.A.S.T. Graphs™ analyzes Net1 UEPS Technologies (UEPS) since its public offering. Net1 when public on April 4, 1998, and like many IPOs, its stock price ran from approximately $40 a share to just under $50 a share between April and June of 1998 (see red circle). At this time, the company had no earnings, and therefore, was trading mostly on promise. Over the next six years or so, Net1's stock price, although volatile, essentially fell to single digits because there were no earnings to support valuation.
Then, after reporting their first earnings per share of $.36, followed by earnings increasing 67% to $.60 per share (see yellow shading at bottom of graph), their stock price skyrocketed from approximately $6.90 a share to over $64 a share by May of 2004. However, once the reality of the company's earnings potential came into focus, the company's stock price plummeted back to its earnings justified single-digit levels (see red arrow). From this point, stock price more or less moved with earnings, although at a high valuation, until May of 2008. Then, the recession of 2008 brought an earnings drop of approximately 18% from a $1.52 to $1.25. This caused a precipitous drop in stock price once again into single digits. Then after the stock price recovered to almost earnings justified valuation, it has drifted down ever since from the low $20s to under $7 per share.